Today I have a guest post from Jeremy Biberdorf of Modest Money; enjoy:
The twenty-first century has been a time of violent change for the everyday investor. No longer
are investors tied to the pages of the Wall Street Journal (well…for the most part). Instead,
technology is driving modern investment just as it is influencing every other facet of our lives.
Today’s robo-investors and modern investment platforms automate diversification. Lots of
competitors are trying to provide beginning investors with all the benefit of high level
management, without any of the cost. We’ll cover some of the specific innovations of this entire
1) Incisive Data, Not Individual Expertise. In the old days, investment advisors were sold
to us like oracles. These were individuals with a lot of experience, and (nominal)
expertise. The problem was (and still is, in many corners of the investment landscape),
that many of these investors weren’t worth their price. Some investment managers
charge up to 2% of a portfolio’s balance each year. For a portfolio straining to achieve
8% annual returns (and often failing), this cost proved to be far too high for investors.
Today’s digital solutions use data analysis to provide even better insights about
investment decisions, for a lot less cost.
2) Trading Costs Are Much Cheaper. No online investment platform review would be
complete without a conversation about costs. In the old days, investors happily paid
upwards of $10 to buy or sell a single stock. Today, through innovators like Motif Investing, you
can buy up to 30 stocks/ETFs at once, for just $9.95. Other competitors like Betterment
have their own cost-cutting measures, providing a lot of value for very little expense.
Expect investors in droves to keep defecting to brokers like these.
3) It’s All About Diversification, No Matter How Much You Have to Invest. 2016 is no
time to try to predict individual winners in the stock market. While this might yield you
good results once in awhile, through luck or an educated guess, diversification is more
important than ever. The global economy is larger and more diverse than at any other
point in history. It is now possible to invest in global sectors, just as the last generation of
investment innovators made it possible to invest in whole indexes, all at once. Index
investment models are still helpful, and should be part of any diversified portfolio.
However, today’s sector-based investment models allow users to be more globally
diversified, while paying a lot less.
Modern investment platforms are coming out of the woodwork, and it can be a little difficult to
keep up with all of the new value propositions on offer. Don’t worry, though. So many changes
are happening in this industry because new digital technologies and data methods are able to
cut costs so deeply. It’s a race to the bottom (cost-wise) for today’s robo-investors, giving
beginning investors lower payments and higher returns than ever before. Try these platforms
out for yourself. You’ll be pleased with the results.
Have you tried out Motif Investing or Betterment? What are your thoughts on Robo-advisors?